The 50/50 Climate Project released its 2017 Key Climate Vote Survey (KCVS) last week. The KCVS focuses on the most “consequential 2017 votes on climate business risk shareholder resolutions”, as well as looking at director elections and Say on Pay votes, at oil and gas and utility companies with the “largest carbon footprints and greatest vulnerability to climate risks”.
The KCVS was unveiled at a discussion panel at the CII’s latest conference, featuring California Insurance Commissioner, Dave Jones and BlackRock’s Michelle Edkins; it was also featured on a panel including California Controller Betty Yee during the just-concluded Climate Week in NYC.
2017 was something of a banner year for proposals calling for climate risk disclosure as support doubled from 2016, with 15 proposals receiving at least 40% support, including Marathon Petroleum, Devon Energy, the Southern Company and FirstEnergy, and three proposals, at Exxon, Occidental, and PPL Corporation, passing in 2017 – the first year in which investors approved resolutions on climate risk in the majority. As the report points out, support for these resolutions was boosted not only by mainstream asset managers such as State Street and J.P. Morgan, but also by BlackRock and Vanguard which both voted for climate risk proposals for the first time.
50/50’s CEO Edward Kamonjoh provided some additional analysis and commentary to RI: “What’s interesting to note is that despite their public statements that climate change poses a material risk at portfolio companies, particularly in the most susceptible sectors, BlackRock and Vanguard only supported two of 14 climate risk disclosure proposals that otherwise received significant (40%+) support from a broad swath of other major investors. Majority votes typically force boards’ hands to act,” continued Kamonjoh, citing the fact that after its drubbing at the hands of shareholders at this year’s AGM, Exxon is “on the ropes” to take action; action that would not have materialised had BlackRock and Vanguard not voted the way they did.
“There is zero visibility on the terms or effectiveness of deals brokered to avoid a vote against board recommendations on climate risk”
“Several of the proposals on the KCVS that received 40%+ support would have been approved by shareholders if BlackRock and Vanguard (the two largest investment managers in the world) had voted in favour of them. The two fund managers often point to their engagement efforts as a more effective tool for catalysing change on climate risk mitigation at portfolio firms than their voting activity, but there is zero visibility to the investors whose assets they manage on the terms or effectiveness of deals brokered with companies in order to avoid a vote against board recommendations on climate risk shareholder proposals.”
Kamonjoh drew a contrast between BlackRock’s and Vanguard’s voting record and State Street’s, the world’s third largest fund by AUM, which has been much more vocal about its opposition to management on a number of environmental and social issues: “State Street, on the other hand, also engages portfolio companies on climate risk but demonstrates strong leadership in addition to that by coupling the firm’s proxy votes with its engagement priorities, supporting the climate risk proposals analysed almost 60% of the time.”To analyse fund managers’ voting records, the report gives a score to each asset manager, with the lowest scores going to those that vote with company recommendations, often in the face of “major board-level governance and performance failures”, including those at ConocoPhillips, Nabors and Kinder Morgan. Kamonjoh shared the methodology of calculating the scores attributed to the asset managers: “The percentage score is calculated by dividing the number of votes that match the recommendations in this report by the sum of (a) those same matching votes plus (b) the votes that were inconsistent with the recommendations.
Despite their “conversion”, BlackRock and Vanguard continue to score very poorly indeed, with only 9% and 15% – the two lowest scores in the survey
In the case of asset managers whose funds cast varying votes on the same proxy issue, a vote of ‘for’, ‘against’ or ‘abstain’ for a particular proposal is assigned to an asset manager if at least 50% of funds within the family vote accordingly on a single resolution. If there is not a consistent voting record on a proposal of at least 50% then the vote is classified as ‘mixed’ and is excluded from the calculation of the score.”
Despite their “conversion”, BlackRock and Vanguard continue to score very poorly indeed, with only 9% and 15% – the two lowest scores in the survey, along with Dimensional Fund, which also scored 15%. This is likely because both saw the light relatively late in the proxy season, when many votes had already been cast. JP Morgan Asset Management also appears to have been late to the party, with a score of only 22%. On the other hand, Morgan Stanley scored 79%, while Wells Fargo and Legg Mason scored an impressive 85% each – higher even than UBS, Eaton Vance and State Street. The two highest scores went to MFS Investment and Deutsche, with 91% and 90% respectively.
“There seems to be a major disconnect between climate risk-related engagement and voting activity by some of the largest asset managers,” said Kamonjoh, “who literally hold the keys to vote outcomes at large cap energy and utility companies with the largest risk exposure. BlackRock, Vanguard and State Street consistently rank among the top three holders at almost 90% of S&P 500 companies, thanks to a concentration of ownership driven by the index fund boom that followed the 2008 stock market bust. When fund managers defer to engagement and delay or deny support to risk disclosure proposals that have drawn significant support from other major investors,” he continued, this allows “corporations [to] often cite ‘low’ investor support for the resolutions (that the largest managers don’t support) as a reason for taking their time to address concerns raised when asset managers engage them on climate risks. In other words, engaging but not voting in line with engagement priorities is a self-defeating exercise.”
If the change in policy of the top two asset managers sticks, however, next year’s vote tally may look markedly different.